Chances fall of RBA hikes in 2011…Employment weakness continues

The May employment data for Australia has just been released and there are two things we would like to say about it. Firstly it is an unequivocally weak number and secondly while the market is surprised having predicted a rise of 25,000 we are not.

The outcome of +7,800 masks the compositional break up which saw 22,000 full-time jobs lost and 29,800 part-time jobs created and the fact that last month’s weak number of -22,000 all up and -49,000 fulltime was revised to -29,400 and -57200 respectively. Even though the unemployment rate stayed at 4.9% these are weak outcomes in anyones language.

Now we said we are not surprised and we obviously need to put some context around that. We watch very closely the NAB Business survey employment index. As thee chart below shows this has been saying that the employment market has been in a downtrend, so conditions are softening for job seekers, for some time now. We wonder why people don’t make more use of this data – the NAB Business survey is one of the most comprehensive on the market and we grew to love it as an indicator when I was doing the currency strategy thing at NAB.

It is also clear that the trend in the ABS employment series has been declining for some time as well and that the monthly volatility is reminiscent of what back in 2008 as the chart below shows. equally it shows that the pace of employment growth of last year as dissipated to almost nothing in 2011. Mr Swan’s 500,000 jobs are at risk.

Looking forward then what can we expect for the future. First thing to say is that employment is a volatile series so any expectation of softening is not one of “every number is going to be negative”. Rather we would simply say that it is time for the trend to predominate.

What the next chart seeks to do is build on the previous one on the outcomes and trends in employment and see if we can get any indications for the future. This is a little messy so bear with us.

  • The light blue line is the same as on the chart above, it’s the trend in employment and is pointing lower,
  • The red line is the RP Data Rismark house price index yoy move which is also pointing lower,
  • The purple line is retail sales trend which has flattened out and
  • The Green line is the average standard variable home loan rate

Our take, supported by our data mining of the break up of retail sales, is that there is more softness ahead and that we’d expect retail sales to be pulled down by falling house prices which will feed back into weaker aggregate demand and thus back into the employment market.

Now all this is esoteric until you get around town and start talking about the economy and hearing retailers asking “where is the boom”. They trusted what they were told about the boom and their businesses are set to reap the rich vein of income the RBA has told us all is coming. The only problem is that because households are carrying so much debt they are saving not spending and the mining boom is still concentrated outside mainstream Australia.

Australian assets have moved materially in the wake of these data. The AUD is down almost a cent from the pre-11.30 level sitting at 1.0569 and I think heading toward recent lows around 1.0450. 3 year swaps are at 5.14% from 5.22% before but the ASX seems buoyed by the delay in any RBA action.

Only an uptick in inflation is going to give the RBA a credible excuse to tighten in 2011 and we don’t think they’ll get it.

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  1. Employment weakness…is not dutch disease | Lighthouse Securities - June 14, 2011

    […] in employment. If that is not a trend then I don’t know what is. I would refer readers to my blog from last Thursday when the weak employment data came out for a recap on what’s going on and how obvious this […]

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